Iron Ore Snapshot: Seaborne Market Remains Tight Commodities | Australia ? Having fallen by 10% since their February highs, seaborne spot iron ore prices have stabilised in the low $170's/t range (basis 62% Fe). ? As ever, there are conflicting views regarding near-term price direction but the balance of opinion suggests further downward pressure on prices in the short term, courtesy of power-related constraints on Chinese steel production, seasonal weakness in European demand, rising port stocks in China, and improving export availability from Australia and Brazil. ? We take a more positive view - our 3Q-11 price forecast is $170/t CFR: - We expect weaker Chinese steel production in 3Q but this is largely seasonal/power-related rather than structural/cyclical weakness. - Despite the strong start to the year for Chinese steel production, there is little evidence of a stock build and rebar margins are holding up well. - Iron ore port inventories are high in absolute terms but are not excessive in relation to pig iron production. - Export availability from India continues to disappoint and Australia/Brazil have a lot of catching up to do following a weak first quarter. - Most important of all, we think real underlying demand in China will exceed current expectations which are overly influenced by policytightening measures rather than real end-use demand. ? Any near-term price weakness could be a good opportunity to buy into a structurally tight seaborne market that could bounce in 4Q-11.
PLV Price at posting:
34.2¢ Sentiment: LT Buy Disclosure: Held
